"These steps are not meant to signal an increase in the long-term interest rates.They are designed to contain speculative pressure on the currency.

NEW DELHI: Prime Minister Manmohan Singh on Friday said that the Reserve Bank of India's move to raise short-term interest rates is only aimed at containing speculative pressure on the rupee, sending a strong signal that the government expects the central bank to resume monetary easing once the currency stabilises.

Singh promised more measures, including further liberalisation of the foreign direct investment regime and steps to boost investment, to ensure a pickup from the decade-low 5% growth last year, but admitted that in the current year, expansion would be less than the 6.5% estimated in the budget.

"These steps are not meant to signal an increase in the long-term interest rates. They are designed to contain speculative pressure on the currency. Once these short-term pressures have been contained, as I expect they will be, the Reserve Bank can even consider reversing these pressures," Singh said at an Assocham function.

RBI announced a series of measures on Monday, including raising the cost of borrowing under the marginal standing facility (MSF) by 200 basis points and narrowing the window for banks wishing to borrow short-term funds from the central bank. These measures, amounting to monetary tightening, are intended to make Indian debt securities more attractive to foreign portfolio investors who have been pulling out money.

Macroeconomic Fundamentals Sound

The over 8% decline in the Indian currency since May has forced a pause in monetary easing despite wholesale inflation having come down below RBI's comfort level of 5%. Singh said the country's medium-term macroeconomic fundamentals remained sound and healthy. He hoped that current account deficit (CAD), which touched a high of 4.8% of GDP in 2012-13, would be lower in the current fiscal and the government will use all policy instruments available — fiscal, monetary and supply-side interventions — to ensure that CAD declines further over time.

Looking to boost investor sentiments and eyeing the much-needed flows to finance CAD, Singh said the government would further relax FDI norms close on the heels of Tuesday's decision to raise FDI caps on sectors such as telecom, and defence on a case-by-case basis. Singh asked industry to shed despondency and expressed hope that the impact of the reforms would boost economic growth in the second half of this year.

"Looking at the medium-term prospects, I feel we can and we should remain optimistic. The basic fundamentals of our economy are sound and healthy. We have been taking all possible measures to correct imbalances on the macro front... I assure you we will leave no stone unturned to ensure that our economy rebounds. I appeal to each one of you not to be overcome by negative sentiments," he said. Industry, however, wants a more holistic plan of action from the government to get the economy back on track.

"Whatever the government has done so far, including the recently announced FDI reforms, has been too little and come really late. Industry is awaiting real decisive action from the government, which can give an immediate push to the pharmaceutical sector and help bring the economy back on the track," Swati Piramal, vice-chairperson of Piramal Enterprises, said.

"The major steps that the government intends to take in the future will only show results in not less than 18 months, and therefore, we feel that at the current pace, it will be difficult to touch even 5% growth in 2013-14," said Sajjan Jindal, chairman and managing director of JSW Steel. The prime minister also hit back at political critics, citing statistics to drive home his point on the government's performance.

"Let me address the issue of the UPA government's performance. Our political critics focus on the experience of one bad year. This makes for good television but it is a very distorted picture," he said. He pointed out that the annual average growth in the eight years of UPA from 2004-05 to 2012-13 was 8.2%, much better than the 5.7% reached in the previous eight years under NDA.

The percentage of population below poverty line declined 0.7% per year before UPA came to power, he said, adding, "it has fallen more than 2 percentage points per year between 2004-05 and 2011-12". "I think this is a record that any government can be proud of. I agree we have had one bad year. I assure you we will get out of it," Singh said.